STAND. COM. REP. NO. 608

                                 Honolulu, Hawaii
                                                   , 1999

                                 RE: H.B. No. 838
                                     




Honorable Calvin K.Y. Say
Speaker, House of Representatives
Twentieth State Legislature
Regular Session of 1999
State of Hawaii

Sir:

     Your Committee on Economic Development and Business
Concerns, to which was referred H.B. No. 838 entitled: 

     "A BILL FOR AN ACT RELATING TO LEASED EMPLOYEES AND
     EMPLOYERS OF LEASED EMPLOYEES,"

begs leave to report as follows:

     The purpose of this bill is to exempt from the general
excise tax amounts received by employee leasing companies that
are passed through as leased employees' compensation, so long as
the employee leasing company does not deprive the leased employee
of rights or benefits through contract negotiations between the
employee leasing company and the leasing employer.

     Your Committee finds that exempting passed through leased
employee's compensation from the general excise tax is a fair
treatment of employee leasing companies.  Your Committee further
finds that such an exemption promises to assist small business by
promoting flexible hiring arrangements through the services of
employee leasing companies.

    Your Committee has considered numerous tax proposals,
including this bill.  Of these proposals, your Committee intends
to report out a package of bills for further discussion and
consideration by the Committee on Finance.  These bills along
with H.B. No. 377, H.D. 1 (Relating to Economic Development), and
H.B. No. 136, H.D. 1 (Relating to Taxation), comprise the House
Tax Package for Economic Development.  The aim of this package is
to improve Hawaii's long-term economic viability.

 
 
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    Your Committee has examined these proposals from the
standpoint of economic development and finds that the following
proposals are most promising for the industries targeted,
benefits offered, and long-term investment strategies they hope
to promote:

    (1)  H.B. No. 119:         Capital goods investment tax
                               credit;

    (2)  H.B. No. 188, H.D. 1: Tax restructuring to establish a
                               sales tax;

    (3)  H.B. No. 231, H.D. 1: Corporate tax reduction;

    (4)  H.B. No. 232, H.D. 1: Wholesale services tax reduction;

    (5)  H.B. No. 375, H.D. 1: GET exemption for exported
                               professional services; and

    (6)  H.B. No. 838:         GET waiver for employee leasing
                               companies.

    Your Committee, however, recognizes that these proposals may
have negative short-term revenue consequences.  Therefore, in
this economic climate, adoption of some or all of the proposals
may not be feasible.  Although the proposals are promising long-
term strategies, the State may not now be in a position to
shoulder the burden of the short-term effects.

    Your Committee respectfully defers to the Committee on
Finance on the fiscal impact of these measures as it develops a
fiscal policy that unites appropriate tax policies with viable
government efficiency reforms in preparing the State Budget.

     As affirmed by the record of votes of the members of your
Committee on Economic Development and Business Concerns that is
attached to this report, your Committee is in accord with the
intent and purpose of H.B. No. 838 and recommends that it pass
Second Reading and be referred to the Committee on Finance.


 
 
 
 
 
 
 
 
 
                                 STAND. COM. REP. NO. 608
                                 Page 3

 
                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committee on Economic
                                   Development and Business
                                   Concerns,



                                   ______________________________
                                   ROBERT N. HERKES, Chair